Fracking may boost Chancellor’s coffers but will do little for consumers

David Elms at Warwick Business School points to another reason why fracking won’t lower energy prices.

In an article in The Conversation, he argues that even if the UK can develop shale gas commercially and sustainably on a significant scale, it will take a highly controversial change in policy for that gas not to become part of the wider European market, where prices are currently around $12/Mbtu.

He says: “The benefits of a sizeable shale gas industry will be in terms of energy security, jobs in the UK and the economic contribution of producing gas here in the UK rather than importing it. So the UK energy market after a shale gas boom would mirror the development of North Sea oil and gas. When North Sea energy came online, prices in the UK still reflected world markets but the country gained significant economic wealth from having a thriving oil and gas industry.

The government takes more than half the value of North Sea energy in taxes. How much it will take from shale is still being debated, but the chancellor can certainly look forward to significant tax revenues, even allowing for some to be passed back to local communities. But the consumer won’t find their bills are suddenly much cheaper.”

This argument mirrors the view of energy analysts who have also highlighted the cost of extracting gas in the UK will be much higher than in the US. Even energy secretary Ed Davey told the BBC, he thought it unlikely exploiting shale gas reserves in the UK would lead to lower energy prices.

So fracking might help the Chancellor’s coffers, but it will do little for hard pressed consumers.